CAPITAL BUDGETING CRITERIA A company has a 11% WACC and is considering two mutua
ID: 2616210 • Letter: C
Question
CAPITAL BUDGETING CRITERIA A company has a 11% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows:
0 1 2 3 4 5 6 7
Project A -$300 -$387 -$193 -$100 $600 $600 $850 -$180
Project B -$400 $134 $134 $134 $134 $134 $134 $0
What is each project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.
Project A $
Project B $
What is each project's IRR? Round your answer to two decimal places.
Project A %
Project B %
What is each project's MIRR? (Hint: Consider Period 7 as the end of Project B's life.) Round your answer to two decimal places. Do not round your intermediate calculations.
Project A %
Project B %
Construct NPV profiles for Projects A and B. Round your answers to the nearest cent. Do not round your intermediate calculations. Negative value should be indicated by a minus sign.
Discount Rate NPV Project A NPV Project B
0%
5
10
12
15
18.1
24.51
Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two decimal places. Do not round your intermediate calculations. %
What is each project's MIRR at a WACC of 18%? Round your answer to two decimal places. Do not round your intermediate calculations.
Project A %
Project B %
Explanation / Answer
NPV, IRR & MIRR for project A is given by following table:
NPV , IRR and MIRR for project B is given by following table:
At 14.28% the NPV of both the projects are equal so 14.28% will be the crossover rate.
MIRR for project A at 18% WACC = 18.05%
MIRR for project B at 18% WACC = 20.7%
0 1 2 3 4 5 6 7 Cashflow -$300.00 -$387.00 -$193.00 -$100.00 $600.00 $600.00 $850.00 -180.00 Present Value -$300.00 -$348.65 -$156.64 -$73.12 395.24 356.07 454.44 -86.70 NPV $240.64 IRR 18.10% MIRR 14.59%Related Questions
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